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The Founder of GoldVal.com is Peter McKenna - a Registered Natural Scientist with over 36 years experience in the mining industry in the fields of exploration and mine geology, reserve / resource evaluation, corporate finance and new business development in various parts of the world. Peter has... More
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  • Where is the Cheapest Gold on Earth? 0 comments
    Dec 1, 2009 5:43 AM

    The cheapest gold on Earth is likely to be under the ground, possibly deep, and in the Inferred category of Resources in a gold mining company. Of the 130 listed gold (and silver) companies covered by GoldVal.com, there are 5 companies where the gold in the ground can be acquired at an effective cost of less than $10 per ounce. This figure is based on Enterprice Value (Market Cap. adjusted for cash or debt) per ounce of total resource reported by the company concerned - using the share price as of 25 November 2009.

    The cheapest is Central Rand Gold - a company operating in South Africa - with reported resources (in Indicated and Inferred categories) of 36 Million ounces and an Enterprise Value of around $45m - that equates to just over $1 per ounce. Another 4 companies having exceptionally low values on this measure (EV per Resource Ounce) are Wits Gold ($2/Oz), DRD Gold ($4/Oz), Simmers ($6/Oz) and Greystar ($6/Oz) - of which the first three are also South African companies. Do these figures suggest there are bargains available? Probably not! - especially in the case of the South African companies - as much of that gold is likely to remain underground for many, many years to come. There is also no guarantee that all of the rsources will be converted into reserves. Some investors may, however, regard such valuations as representing a low cost option on the future gold price.

    At the other end of the scale, with the recent increase of gold company values, the effective value of the gold resources held by the several companies has also increased to new high levels. Of the companies covered by GoldVal.com, there are 7 companies having EV per Resource Ounce of over $400/Oz. These are: Citadel ($1211/Oz), Sangold ($568/Oz), Tanami ($521/Oz), Hochschild ($476/Oz), Lake Shore ($468/Oz), Buenaventura ($450/Oz) and Avoca ($419/Oz). In some cases, these figures include silver resources expressed as Gold Equivalent. (In the case of Citadel, the company valuation is likely to be more related to the copper value in the company which is not included as a Gold Equivalent.)

    When Gold Reserves are considered, i.e the Proven and Probable categories, a largely different group of companies have the highest valuations (EV per Reserve Ounce). These are: Sangold ($2725/Oz), Endeavour Silver ($1570/Oz), Lake Shore ($1485/Oz), Wesdome ($1433/Oz), Intrepid ($1214/Oz), Hochschild ($1105/Oz), Medusa ($1075/Oz), Fresnillo ($1031/Oz). Again, silver companies are included with their reserves expressed as Gold Equivalent. In cases where such values are well above the current price of gold, the market presumably believes that there is a good chance that most of the resources will be converted into reserves and/or that additional reserves and resources will be discovered or acquired relatively cheaply.

    Such statistics need to be treated with care, and generally should be viewed together with all other information about the company concerned, but they can provide for useful comparative anaysis. See www.goldval.com/reserves-resources.



    Disclosure: Nil
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